Good day, and Welcome to the Schibsted ASA Q4 2019 and Q&A Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jann-Boje Meinecke, Head of IR. Please go ahead, sir.
Good afternoon. My name is Jann-Boje Meinecke, and I'm the Head of IR at Schibsted. A warm welcome to all of you here from Oslo in connection with the presentation from our Q4 results. Many thanks to all of you for joining us here. Together with me here in Oslo in the room is our CEO, Kristin Skogen Lund, and our CFO, Ragnar Kårhus. This morning, we held a webcast presentation of the Q4 results in Oslo, and many of you may have seen it. If not, please go to our IR website and find the replay. Adevinta reported its Q4 results yesterday, and their recording of the presentation is available adevinta.com. Now I would like to hand over the word to Kristin for a short introduction before we open the Q&A.
Thank you very much, Jann-Boje. Hello, everybody. This morning, we reported Q4 results with good growth development within key strategic focus areas. Excluding Adevinta revenue grew 1%, which is in line with the previous quarter, while EBITDA came in 3% lower and 21% lower if you exclude the IFRS 16 effect. Our Nordic marketplaces had a solid revenue growth at a somewhat lower pace. EBITDA increased in spite of investments in Sweden to ensure further growth and due to some catch-up investments also. FINN increased revenues driven by its verticals and a good development in display advertising, despite rather flat volumes for real estate and lower volumes for jobs compared to last year. This volume development has continued in the start of 2020. Blocket continued its growth momentum by a successful revamp of the professional car segment.
Digital subscription revenues continued to grow well in news media, and our Norwegian operations continued to show stable margins. However, the overall EBITDA for news media came in significantly lower compared to Q4 last year, driven by a significant drop in advertising revenues, particularly in Sweden. As in previous quarters, this is primarily caused by the regulatory tightening of the gaming industry, affecting Aftonbladet. To turn around the negative margin development and secure long-term healthy profits for our news media operations, we have decided upon and started implementing improvement initiatives across our brands and functions in news media. Financial services delivered revenue growth of 4% compared to last year, driven by continued double-digit growth for Lendo Sweden, whereas the development in Norway is still influenced by the tighter regulation for consumer loan banks and its stable quarter-over-quarter for the time being.
Looking at the international expansion, we are overall happy with the development, particularly for Denmark, and we plan for a soft launch in Spain during 2020. Finally, let me say a few words about our financial situation. As previously communicated, we do see interesting opportunities to deploy capital into M&A and other growth opportunities. At the same time, we will look into addressing any overcapitalization through dividends or share buybacks over time. Looking at the cash dividend for 2019, the board has proposed an ordinary dividend of two NOK per share by Schibsted, which is in line with our dividend policy. We will also continue our previously communicated share buyback program in order to reach the 2% target for buyback. Execution on this will depend on the market conditions going forward.
Quickly to summarize, Nordic marketplaces, solid growth despite somewhat lower job volumes in Norway. News media, good development for its subscription business, while advertising remains challenging and to improve margins, we have started to implement improvement initiatives. Finally, Lendo in Sweden continues to show good growth and a soft launch in Spain is planned for later this year. With that, I'd like to hand the word over to you, operator, and you will, I suppose, organize the Q&A session. Thank you.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. A voice prompt on the phone line will indicate when your line is open. Please state your name before posing your question. Again, press star one to ask a question. We will now take our first question. Please go ahead. Caller, your line is open.
Good afternoon. It's Lisa Yang from Goldman. A few questions, please. In Sweden, EBITDA was down NOK 10 million, despite revenue up 8%. Just wondering how you're thinking about the level of investment for 2020, especially whether the catch-up investments will be in Q4 or that should also continue in 2020. That would be helpful. Secondly, I'm just wondering why the revenue for Lendo investment phase went down in Q4 versus Q3, given you're in a ramp-up phase. Is that just due to seasonality? How should we think about the run rate of revenue 2020? Related to Lendo, do you still expect the Lendo investment phase to reach breakeven by 2021-2022? I think you made a comment related to that for Denmark.
Does that still apply? The last question is in terms of the M&A and cash returns that you talked about. At the Q3 results, you said something would happen in a six-12 month timeframe. Just wondering if that timeframe is still valid. That means in the next six months we should hear something in terms of M&A cash returns. Thanks.
Concerning the EBITDA in Blocket, it's true that it is lower and it is due to what I have said that, you know, we have some catch-up investment due to technical debts, and we have increased our number of FTEs both in product and tech and sales. Right now, the most important thing is to let Blocket focus on that growth momentum which they are currently enjoying, and that takes precedence over other considerations for the time being. Beyond that, I don't think we want to guide on how this is gonna look going further. When it comes to Lendo International Q4 versus Q3, yes, there is a slight drop. It has to do with some seasonality effects in Denmark, where the majority of that revenue is coming from.
There is nothing, I mean, I wouldn't put any emphasis to that. It's a seasonality effect. Then I think you asked about the investment phase and break even. I believe we have guided that we believe it will take a bit longer than it did back with Norway and Finland, that we're looking at a three-four year horizon, and I think that remains the same. Then I forgot what you asked as your last question. Sorry.
Yeah, just about the timeframe of when you expect larger scale M&A and larger scale cash returns to take place, 'cause at the Q3 results last October, you talked about six-12 months. I'm just wondering if that's still the case?
Yeah. right. Yeah. We are hoping. Look, we are really active, and we are investigating and being very active in the field. As you know, some of these things take time, you can't always, either stress or decide on the timing of things. We are just being very active about it, and we hope that, we will make some progress.
Can I ask another question related to your investments in distribution? Just wondering if you can talk about the revenue benefit from the investments, and when should that, you know, benefit materialize?
We have announced that we will make investments of NOK 50 million this year. I think it's reasonable to look at maybe, you know, payback, typically in the range of a couple of years before you will see that materialize. We believe it's very important now to put more momentum into those operations as they are progressing really well. There is strong growth in the market. We're gaining share. We also have the new Svosj concept, which potentially has a very strong network effect if we manage to make it work. We're signing on constantly new partners, and it's the right time to boost investments in that concept now.
Okay, thank you.
We will now take our next question. Please state your name before posing your question.
Hello. This is Omar Sheikh from DNB. I have a couple of questions. Starting with your headquarters cost. It was quite high in Q4, and I didn't quite catch on this morning's conference call whether you expected the Q4 level to be representative going forward or whether it was the full year 2019 level. Also a follow-up on that, I understand that you aim to allocate it to the various segments. Can you give any rough indication on how this split will be? That was my first question. The second part is coming back to Blocket.
I understand that you don't want to provide any margin guidance. Is it possible in Q4 to make a comment on how much the increased employees and product and tech spend had an impact on the margin?
I can start by commenting on the headquarter costs.
Yeah.
The two reasons for why the cost in the Q4 was somewhat higher than the previous quarter. The first was that you saw a lower capitalization rate within product and tech this quarter compared to previous quarters. The flip coin of that you will see in our CapEx investments, which then also were somewhat lower. In addition to lower capitalization rate, we also invest in let's say new data and tech capabilities at group level to better support our businesses and to utilize our sort of pretty broad data platform. And that is an investment that I think will sort of we'll get good return on in the time to come.
That is the two main reasons for the increased costs. With respect to the change in financial reporting, the total costs within headquarter and what we call other central functions, these costs are include services that are delivered to the business segments. These costs have not been allocated sort of fully to the segments. To create better transparency on what is driving these costs, we will allocate them based on usage to operating segments. That said, it's also important that we are using it not only sort of to create transparency, but that it's combined internally with processes to improve more stricter prioritizations and also improved cost control.
Can I just follow up on that? On the 2019 level, is that representative for cost in 2020, or is it the Q4 level that is representative for cost going forward?
I think, we will continuously work to also to reduce costs at headquarter and at sort of the headquarter and other central functions. You will see that this for coming quarters, this will be more or less representative of the run rate.
Mm-hmm.
On your Blocket, I don't think we want to go into that level of detail and specifics, so that's okay.
Okay. Is it possible then, going back to the first question, on the CapEx, since you know, there was some higher or lower capitalization, can you give any CapEx guidance for 2020?
I think we expect CapEx more or less on the same level as in 2019, plus minus depending a little bit on the rate of... So the size of how much is capitalized.
Okay. Okay. Thank you.
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Hi, it's Catherine from Citi. I just had one question really around the digital advertising revenue. In the release you talk about moving away from or eliminating programmatic. I just wondered what proportion of your digital ad revenue and news media is programmatic currently? The pressure you expect in 2020, is that still predominantly in Sweden or is that across the board? Could you maybe just expand on what the factors are that's driving this beyond the gaming regulatory change?
Right. Right. I don't think we have said that we will go away from programmatic, I mean, it's I think it's a good idea to become a bit less dependent upon it. On the other hand, you could say that our programmatic revenues are actually increasing in Sweden since when we, you know, introduced GDPR in 2018, we didn't put any inventory on Google, and we reversed that mid-year last year. Actually programmatic advertising is picking up in Sweden for the time being because of that change. In Sweden, you could say, you know, we have three effects hitting at once. One is that the overall market is down, you know, depending on who you ask, some 15%-20%. I mean, there is a general strong contraction of the overall market in Sweden.
Second, you have this Google effect, let's call it, the fact that we did not put any inventory on Google and we're punished for that, which is now reversed, but it takes time to build back up. Finally, the specific hit from the gaming industry. All these three things hit at once. Going forward, we will obviously now when we get to the Q2 and beyond, meet less strong numbers from last year. I mean, that will make the relatives look better, but it won't, you know, bring any more cash in by itself. I think most experts predict a still rather soft development for advertising in Sweden, you know, I find it hard to predict beyond that. When it comes to Norway, you know, the picture is better.
Actually, you know, across all our brands in Norway, we grew 3% in advertising in Q4. If you take out FINN from that, it's more or less flat. Norway looks better, but also here we have experienced a lot of volatility, so it's just simply very difficult to predict how it will develop.
You're not seeing any specific changes relating to Google's clamping down more on third-party cookies and the whole idea of same site tags?
Yeah. Well, you know, I mean, that development, I mean the, let's say, the death of the cookie development is something of course we follow carefully, but, you know, we are aware of that development and adjusting accordingly.
Okay. Thank you.
We will now take our next question. Please state your name before posing your question.
Hi team, it's Andrew here from Barclays. I've just got one left. A bit of a boring one, I'm afraid. I think you mentioned on Aftenbladet there'd been an accounting change, which had impacted revenues, and I hadn't fully understood that. Could you just go over that again in terms of exactly what changed and whether it impacted also EBITDA? Thanks.
Right. Okay. The change was that we used to record subscriptions per month, and now we are doing it per day. A more, let's say, dynamic accounting of it. For Q4, that gave a negative one-off effect this year. The underlying growth of subscription revenue is 27%, so it's quite a lot stronger than what appears in the number. That it's a one-off effect just happening now because of that change of accounting or revenue recognition is more precise to say.
Is that something that flows through into the next three quarters of 2020 as well, or is it all now done?
It's a one-off, NOK 8 million. That will just, you know. You know, that it's a one-off, it will continue from now on and the effect is just a, you know, a once.
Okay. NOK 8 million one-off. Okay. Thank you.
As another reminder, if you would like to ask a telephone question, please signal by pressing star one on your telephone keypad. We'll pause for just a moment to allow everyone opportunity to signal for questions. There appears to be no further questions in the queue. I would like to turn the conference back to the host for any additional or closing remarks.
Thank you very much for participating in this call today. I wish you all a very good day, and thank you for joining.
Thank you.
This concludes today's call. Thank You for your participation, ladies and gentlemen. You may now disconnect.